Pricing Research Methods: How to Run a Price Study

 

As a business owner, one of the most important decisions you will make is how to price your products or services. Pricing can greatly impact your business success, and getting it wrong can be costly. This is where pricing research comes in, which involves studying and analyzing different pricing strategies to determine the best approach for your business. In this article, we will explore pricing research methods, how to conduct a pricing study, the benefits of pricing research, and more.

Pricing research is a crucial aspect of any business, as it helps you to make informed decisions about pricing your products or services. With the availability of advanced market research software for pricing research, it has become easier to conduct pricing studies and make data-driven pricing decisions.

Types Of Pricing Research Methods

There are several types of pricing research methods. Some of the most common pricing analysis methods are:

• Conjoint analysis
• Price sensitivity meter (PSM--Van Westendorp pricing model
• Gabor-Granger pricing method
• Monadic price experiments

Each of these pricing analysis methods has its own unique approach and can provide valuable insights into consumer behavior and preferences towards pricing. The method you choose will depend on your research objectives, target audience, and product or service offering. Below, we will explore each of these pricing techniques, in more detail.

Conjoint Analysis

Conjoint analysis is a popular pricing analysis method used to measure the relative importance of different product features and pricing attributes. It is based on the idea that consumers make trade-offs among different features of a product when deciding to purchase it. By using this analysis method, researchers can identify the most important product features and pricing attributes that affect consumer behavior.

Strengths:

• The conjoint analysis pricing technique helps businesses to understand the most important factors that influence customer decision-making, allowing them to optimize product features and pricing strategies.
• It allows researchers to simulate different product configurations and pricing scenarios, giving businesses valuable insights into how customers might react to different offerings.

Weaknesses:

• The conjoint analysis pricing method can be time-consuming and expensive to conduct, especially for complex products or services.
• It assumes that customers make decisions based solely on the features and pricing of the product, which may not always be the case.

Price Sensitivity Meter (PSM—Van Westendorp approach)

The Van Westendorp Price Sensitivity Meter is another pricing research method used to measure how sensitive customers are to changes in price. It is based on four questions that ask customers to specify the acceptability of different price points:

• At what price would you consider the product to be so expensive that you would not consider buying it?
• At what price would you consider the product to be priced so low that you would question its quality?
• At what price would you consider the product starting to get expensive, but you would still consider buying it?
• At what price would you consider the product to be a bargain, a great buy for the money?

Strengths:

• The Van Westendorp Price Sensitivity Meter provides businesses with a range of acceptable prices for their products, allowing them to make informed pricing decisions.
• It is a simple and easy-to-understand method that can be used with a wide range of products and services.

Weaknesses:

• The Van Westendorp pricing method relies on customers' perceptions of price, which may not always be accurate or reliable.
• It assumes that customers have a clear idea of what they are willing to pay for a product, which may not always be the case.
• It typically focuses on just one product concept, rather than multiple variations of the same product.

Gabor-Granger Pricing Method

The Gabor-Granger method is a pricing research method that asks customers to indicate their willingness to buy a product at different price points. It is based on the assumption that customers' willingness to buy a product decreases as the price increases.

Strengths:

• Gabor-Granger pricing method provides businesses with a clear understanding of the price range at which customers are willing to buy their products.
• It is a simple and straightforward method that can be used with a wide range of products and services.

Weaknesses:

• Gabor-Granger pricing method assumes that customers are rational decision-makers who will base their purchase decisions solely on price, which may not always be the case.
• It does not provide information on the relative importance of different product features or pricing attributes.
• It is so clearly a pricing game to respondents that the data may not be predictive of actual purchase decisions.

Monadic Price Experiments

Monadic price experiments involve randomly dividing respondents into different groups and showing each group a different price for the product concept.  Often, the test product concept is shown in competition against other fixed competitors, as well as the “None” option (the ability to walk away and not buy anything).

Strengths:

• The monadic pricing analysis technique is usually considered a scientifically sound experiment.
• If made to look like market choice scenarios with competitors also represented, it more realistically resembles market choices.
• It is quick for respondents to answer, since it typically only involves a single choice or buy/no buy question.

Weaknesses:

• The monadic pricing analysis method typically focuses on just one product concept, rather than multiple variations of the same product.
• Sample size requirements are typically larger than other pricing research approaches.

How To Conduct a Price Study

Conducting a pricing study is vital for setting the right price for your products or services and understanding market dynamics. Here's a streamlined outline for the process of conducting a pricing study:

1. Define Research Objectives: Start by pinpointing exactly what you aim to discover through your pricing study. Whether it's finding the optimal price point, understanding price sensitivity, or assessing competitive pricing strategies, clear objectives will guide your study's direction.
2. Identify Your Target Audience: Knowing who your customers are and segmenting your market accordingly ensures your pricing strategy is focused and relevant. Consider demographics, purchasing behaviors, and preferences to define your audience accurately.
3. Select the Pricing Analysis Method: Choose a pricing analysis method that aligns with your objectives and audience. The most common pricing analysis techniques to choose from include: Conjoint Analysis for feature-value trade-offs, Van Westendorp for acceptable pricing ranges, Gabor-Granger for maximum price tolerance, and Monadic Price Testing for response to specific price points.
4. Plan and Execute the Study: Design your study with your selected method, recruit a representative sample of your target audience, and collect data. Ensure clarity in your survey or experiment to avoid biases and inaccuracies.
5. Analyze Data and Make Decisions: Finally, analyze the collected data to extract actionable insights. Use these findings to make informed decisions on pricing that align with both market demand and your business goals.

This streamlined guide provides a clear path to conducting effective pricing studies, helping you to set prices that attract customers while maximizing profitability. Note: it's also important to determine how to price the study itself, which involves considering factors such as the level of detail required, the length of the study, and the resources available.

Benefits of Pricing Research

Pricing research offers invaluable benefits to businesses seeking to optimize their pricing strategy in a competitive marketplace. At its core, it provides deep insights into customers' willingness to pay, ensuring that your pricing aligns with market expectations and value perceptions. By meticulously analyzing consumer behavior and preferences, pricing research helps in pinpointing pricing strategies that not only resonate with your target audience but also bolster your brand's positioning and competitive edge.

Furthermore, an in-depth look at competitor pricing strategies through this research illuminates market trends and pricing norms, offering a clearer path to strategic pricing decisions that can outmaneuver competitors. Armed with this information, businesses can craft pricing models that enhance customer acquisition and retention, ultimately leading to increased revenue and profitability.

The benefit of pricing research lies in its ability to arm decision-makers with data-driven insights, enabling the formulation of pricing strategies that are both competitive and profitable. By leveraging the rich insights garnered from pricing research, businesses can navigate the complex pricing landscape with confidence, ensuring their product or service offerings are priced optimally to meet both market demands and business objectives.

An Example of How Pricing Analysis Can Affect Business Success

If you are launching a new product, you might consider using a penetration pricing strategy to capture market share quickly. This involves setting a lower price initially to attract customers and then gradually increasing the price over time as your product gains popularity. On the other hand, if you are offering a high-end luxury product, you might use a skimming pricing strategy to target customers willing to pay a premium price for exclusivity.

Pricing Strategies

There are four common pricing strategies:

• Cost-plus pricing
• Value-based pricing
• Penetration pricing
• Skimming pricing

Each of these strategies has its own advantages and disadvantages, and the best approach will depend on your business goals, target audience, and product or service offering.  The survey-based research methods we’ve been discussing in this article more directly address the proposition of value-based pricing: setting prices based on the perceived value of the offering to the consumer.

A good pricing strategy is one that aligns with your business goals, target audience, and product or service offering. It should also take into account your costs, competitors, and market demand. The best approach is to test different pricing strategies and measure their impact on revenue and profitability.

Conclusion: What Is the Best Pricing Research Method?

Ultimately, the best pricing analysis method depends on various factors such as product type, market demand, and competition. Conjoint analysis is a useful method for pricing new products or modifications to existing products, while the other pricing research approaches we’ve been discussing tend to focus on just one proposed new product or a single proposed product modification.

Pricing research is a crucial aspect of any business, and with the right tools and methods, it's easier than ever to conduct a pricing study and make data-driven pricing decisions. Understanding your customers' willingness to pay, identifying the best pricing strategies for your business, and testing different approaches will help you to increase revenue and profitability.

Learn more about how our Discover survey platform can help you with your next price study.